Priceline 2014 Annual Report Download - page 90

Property and Equipment — Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation
and amortization of property and equipment is computed on a straight-line basis over the estimated useful lives of the assets or, when applicable,
the life of the lease, whichever is shorter.
Website and Software Capitalization — Certain direct development costs associated with website and internal-use software are
capitalized and include external direct costs of services and payroll costs for employees devoting time to the software projects principally related
to website and mobile app development, including support systems, software coding, designing system interfaces and installation and testing of
the software. These costs are recorded as property and equipment and are generally amortized over a period of two to five years
beginning when
the asset is substantially ready for use. Costs incurred for enhancements that are expected to result in additional features or functionality are
capitalized and amortized over the estimated useful life of the enhancements. Costs incurred during the preliminary project stage, as well as
maintenance and training costs, are expensed as incurred.
Goodwill — The Company accounts for acquired businesses using the purchase method of accounting which requires that the assets
acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Any excess of the purchase price over the
estimated fair values of the net assets acquired is recorded as goodwill. The Company's Consolidated Financial Statements reflect an acquired
business starting at the date of the acquisition.
Goodwill is not subject to amortization and is reviewed at least annually for impairment, or earlier if an event occurs or circumstances
change and there is an indication of impairment. The Company tests goodwill at a reporting unit level. The fair value of the reporting unit is
compared to its carrying value, including goodwill. Fair values are determined based on discounted cash flows, market multiples or appraised
values and are based on market participant assumptions. An impairment is recorded to the extent that the implied fair value of goodwill is less
than the carrying value of goodwill. See Note 9 for further information.
Impairment of Long-Lived Assets and Intangible Assets — The Company reviews long-
lived assets and amortizable intangible assets for
impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The assessment
of possible impairment is based upon the Company's ability to recover the carrying value of the assets from the estimated undiscounted future
net cash flows, before interest and taxes, of the related operations. The amount of impairment loss, if any, is measured as the excess of the
carrying value of the asset over the present value of estimated future cash flows, using a discount rate commensurate with the risks involved and
based on assumptions representative of market participants.
Agency Revenues
Agency revenues are derived from travel-related transactions where the Company is not the merchant of record and where the prices of
the services sold are determined by third parties. Agency revenues include travel commissions, global distribution system ("GDS") reservation
booking fees and customer processing fees, and are reported at the net amounts received, without any associated cost of revenue. Such revenues
are generally recognized by the Company when the customers complete their travel.
Merchant Revenues and Cost of Merchant Revenues
Merchant revenues and related cost of revenues are derived from services where the Company is the merchant of record and therefore
charges the customer's credit card and subsequently pays the travel service provider for the services provided.
Opaque Services : The Company describes its priceline.com Name Your Own Price
®
and Express Deals
®
travel services as "opaque"
because certain elements of the service, including the identity of the travel service provider, are not disclosed to the consumer prior to making a
reservation. The Name Your Own Price
®
service connects consumers that are willing to accept a level of flexibility regarding their travel
itinerary with travel service providers that are willing to accept a lower price in order to sell their excess capacity without disrupting their
existing distribution channels or retail pricing structures. The Company's Name Your Own Price
®
services use a unique pricing system that
allows consumers to "bid" the price they are prepared to pay when submitting an offer for a particular leisure travel service. The Company
accesses databases in which participating travel service providers file secure discounted rates, not generally available to the public, to determine
whether it can fulfill the consumer's offer. The Company selects the travel service provider and determines the price it will accept from the
consumer. Merchant revenues and cost of revenues include the selling price and cost, respectively, of the Name Your Own Price
®
travel services
and are reported on a gross basis.
85